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The Advisory Firm Newsletter:  January 2013

THIS MONTH IN PERSONAL FINANCE: Updated "preliminary" key financial data for 2013 & Behavioral Finance.


Happy New Year! 2013 is bound to be an interesting year with tax laws, Congress and the Debt Ceiling. For personal finance we will stick with what we can control and plan for and leave the other items for the media to pontificate about.

Preliminary Key Financial Data for 2013:

Below is the "preliminary" version of the Key Financial Data Quick Reference guide for 2013. It is preliminary as the company that prints this for me is waiting on the IRS for some final guidelines and won't have the laminated version sent out until early February. If you click the link below you can access the PDF electronic copy and simply print out or save to your computer. If you want a laminated copy to keep around the office, just email me in a few weeks and I'll send out:

financial facts

*Note: some values on the Quick Reference Guide are subject to change within the next few weeks. Please confirm any information with your tax advisor or planner before acting on it!




Key Highlights of the most recent (American Tax Relief Act) Tax Bill:

First of all - what wasn't extended: Payroll tax relief! Everyone that gets a paycheck will notice a little less than before. The 2% payroll tax holiday wasn't extended so instead of paying FICA taxes at a rate of 4.2% you will now be paying the normal 6.2% on the first $113,000 of earnings. Remember that Payroll taxes are a combination of Social Security and Medicare taxes. Social Security is divided up between the employee and employer, so each pay 6.2% of earnings up to $113k. Medicare tax for employee is 1.45% and is over your entire compensation.

AMT: Alternative Minimum Tax. This has been a hot button issue as it was implemented to catch a few wealthy tax payers decades ago that were writing off much of their income and therefore avoiding taxes, it was a "flat tax" basically. The problem is that Congress forgot to put in a Cost of Living adjustment or inflation rider and they have continually had to "patch" this to keep from hitting a larger percentage of the population. Finally a permanent patch has been put in place and the future values will be indexed for inflation.

Estate Tax: Unbelievable! We finally have something concrete from Washington on the Estate Tax issue! The Estate Exemption for 2013 is $5,250,000 and will also be indexed for inflation for future years. One additional item is that the portability provision has been made permanent. (So if you don't use all of your estate exemption your spouse gets to use the remainder)

Charitable Donations from IRA's: if you are over 70 1/2 and are required to take RMD's from your IRA, you can now divert that directly to charity and the amount will not be included in your Adjusted Gross Income (this is valid for 2012 and 2013)


Behavioral Finance:

I have taken a keen interest lately in Behavioral Finance, which is basically how emotion and psychology influence our money and investing decisions. A book I am reading about the subject is by Robert Schiller an Economist at Yale that has done extensive writing on the topic. His book "Irrational Exuberance" first came out in early 2000, near the peak of the Tech Bubble. He followed up with a second edition in 2005 incorporating real estate into the theme. The book takes on the topic of why "bubbles" form in markets and morphs into the fact that despite knowing better that we as human beings get caught up in a feedback loop that propels bubbles higher and higher, until eventually they pop. He sites some interesting examples as to how emotion and positive psychology (as in the good times will never end) can make us do completely irrational things when it comes to investing. One that really nailed this point was when Etoys.com went public in the late 90's. It's market cap was $8 billion vs. a $7 billion market cap for well established toy retailer Toys R Us. This despite the fact that Etoys.com had a couple hundred million in sales and no earnings vs. Toys R Us having over $10 billion in sales and very good earnings. Everyone was caught up in the internet craze and this excitement fed on itself. Investors wanted a piece of the action, Analysts put sky high valuation targets on these New Economy companies based on this momentum and the feedback loop perpetuated itself. This until something caused a tipping point and reality set in. We know better, but fundamentals are things that can get cast aside as emotion takes over. This is one reason I don't follow the Efficient Market Theory, which states that all assets are accurately priced and reflect all known information. This concept would require human beings to be always be rational when it comes to money.

As I was wrapping up this newsletter an email hit my inbox from a blog I follow. Many of you have heard of Mark Cuban, the very outspoken owner of the Dallas Mavericks and billionaire founder of multiple tech companies. He keeps a blog that details his start in business along with other thoughts on the world. This latest blog entry was a rehash of one he posted in 2004 about his experience in the stock market as a trader/investor. It's a critique on Wall Street, which is much deserved but I thought that it tied in nicely with this whole Behavioral Finance topic, so wanted to share the link:


I hope you enjoyed this months newsletter. If you have any questions about planning or investing feel free to drop me an email:

James A. Daniel, CFP


Disclaimer: this information is for general purposes and should not be considered tax advice. Talk with your accountant and/or advisor before implementing!

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The Advisory Firm, LLC provides fee-only financial planning services for clients throughout metro Atlanta and North Georgia including the communities
of Alpharetta, Canton, Cumming, Dawsonville, Duluth, Dunwoody, Marietta, Midtown, Roswell, and Woodstock.

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation
for financial services. Consult with your financial professional if you have any questions. The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.